Mining resurgence

By Nawa Mutumweno – Zambia’s mining sector recorded a marked slow down in the period 2008 – 09 in the wake of the global economic crisis which led to reduced copper prices coupled with the closure of certain mining operations.

The worst of the credit crunch seems to have passed with the country’s mining industry set for revival, evidenced by resumption of operations in mining firms that had gone on ‘production leave’ and new investments in the offing.

A rise in copper prices was recorded on the world market during the first half of 2009 and most mining companies started to plan for increased production. Currently copper prices on the London Metal Exchange (LME) are hovering over $ 7 000 per tonne. Out of the 8 500 jobs lost in the mining industry as a result of the global economic crisis, over 1 500 have been regained.

Total copper production in 2010 is projected to increase by about 5 percent from a projected 664 000 metric tonnes in 2009, according to the 2010 -2012 Medium Term Expenditure Framework and 2010 Budget highlights. However, according to Bank of Zambia official statistics, copper production in 2009 leaped to 675 384 metric tones from 587 125 metric tones in 2008, representing a 14 percent rise despite some mining units halting production. Cobalt production rose to 5 879 tonnes from 4 617 during the same period under review.

Zambia’s revenue earnings from copper sales in 2009 tumbled to $2.9 billion from $3.6 billion recorded in the previous year despite increased output, according to the Bank of Zambia (BoZ). The decline in earnings was attributed to the falling metal prices which hit a low of about $3 000 per tonne in the first quarter of 2009 before resurging to the current levels of over $7 000, rallying on the recovering global economy.

Mining prospects in the short term will also be boosted by the production of non-traditional minerals like nickel and coal. Analysts are of the view that copper production will hit one million metric tonnes by 2012.  This significant rise in both copper and cobalt output is achievable with the imminent completion of the massive $500 million Konkola Deep Mining Project, increased production at other mines and new units coming on stream.

Financial capacity in the gemstone and non traditional mining sub sector should be enhanced with more regulation and fair value marketing system to increase investment and value addition.

Zambia’s mining sector vision, as enshrined in the Vision 2030 document, is a well organized private sector-led mineral resource exploration and exploitation that contribute to sustainable social economic development.  The targets/goals embrace increasing the share of mineral output used in industrial productivity to 30 percent; geo-mapping Zambia’s surface area; and reducing environmental degradation from mining activities by 75 percent.

Positive recent developments in the mining sector include the commencement of exploration works for minerals in Mwinilunga, North-Western Province by Zhonghui Mining Group of China. The firm plans to invest more than $3 billion in mining activities on the Copperbelt and North – Western provinces.

Mining operations resumed at Luanshya Copper Mines (LCM) following acquisition of the mine in June 2009 by China Non – Ferrous Metals Corporation (CNMC) of China. Munali Nickel Mine which had also been placed under care and maintenance has also started production.

Konkola Copper Mines (KCM) recently announced plans to invest $170 million to build a copper plant with a capacity to process 12 million tonnes of refractory ore per annum.   The new plant would be located near its Nchanga mine in Chingola, according to an Environmental Impact Statement (EIS) submitted to the Environmental Council of Zambia (ECZ).

“The proposed project will be a stand-alone hydrometallurgical plant with its own support facilities such as crushing, milling, electro-winning, residual neutralization and disposal,”   KCM stated in the EIS.

Other key developments during the year under review include the opening of the first ever emulsion explosives manufacturing plant in Zambia by Bulk Mining Explosives (BME) at a cost of $1.2 million in Solwezi. Extraction of copper ore by Lumwana Development Company on a small scale mining licence in Mwinilunga was approved by the Environmental Council of Zambia (ECZ).

In a bid to revamp operations at the cash-strapped Maamba Collieries Limited (MCL) , NAVA Bharat (Singapore) PTE Limited was selected to become an equity partner of the ZCCM – Investments Holdings Plc.

Development of an open pit mining operation was undertaken by Mopani Copper Mines  (MCM) on the Copperbelt.

This positive mining outlook assumes that the global economy recovers in the medium term and the fundamentals of copper remain sound in terms of supply and demand.

The Government continues to place emphasis on encouraging investment in the sector, particularly in exploration activity for minerals, oil and gas. Long-term growth in the sector is dependent on new mining activity and reduction of costs in existing mining operations to ensure long-term profitability amidst a volatile international commodity price environment. Government should continue supporting the mining industry in its efforts to improve its competitiveness through a favourable policy environment.

In 2009, the mining tax regime which introduced the windfall tax the previous year was scrapped amid discontent from various sections of society. Finance minister Dr Situmbeko Musokotwane justified the new incentives given to the mining sector during the onset of the global financial crisis as “necessary if the country’s economy was to survive.”

Government has no intention of re-introducing windfall tax despite the increasing price of copper, saying that Zambia stands to gain more from increased long-term foreign direct investment (FDI) in the mining sector than the short-term tax revenue losses arising from the abolishment of the tax.

“Our main concern was the impact that would have occurred in the country had the mining companies been allowed to close. Our intention was prevention rather than cure. We are confident that with the action Government has taken, more jobs will be created this year in the mining sector,” he elaborated.

According to the Chamber of Mines in Zambia (CMZ) president Nathan Chishimba, the decision by Government not to re-introduce windfall tax despite increased copper prices will continue to attract and retain “credible investment in Zambia’s mining sector”, adding that using the variable tax on prices of copper would ensure that mining regulations and policy evolved into a consistent and mature regulatory regime.

However, mineral economics experts maintain that there is need to immediately restore the abandoned 2008 mining fiscal regime due to “pressure from mining firms” as it was well researched and easier to administer than the current one.

With new mines being opened, existing ones being expanded and new direct investment on the upswing, Zambian mining will continue to be a key ‘actor’ on the world’s economic stage.